World Bank’s South Asia Economic Update
Policy Brief: Accelerating Inclusive Growth and Job Creation in India, 2026–2030
1. Context and challenge
India is the engine of South Asia’s growth, projected to remain among the fastest‑growing major economies even as regional growth slows to about 6.3% in 2026. However, global energy‑price shocks, AI‑led restructuring of global value chains, and uneven labor‑market dynamics are making job‑rich growth harder.India already uses industrial policy actively—especially in manufacturing—but the experience across South Asia shows that such policies yield mixed results unless they are well‑targeted and underpinned by strong fundamentals.
2. Infrastructure: Anchor growth and jobs
India should prioritize infrastructure that deepens connectivity, reduces logistics costs, and supports export‑oriented and AI‑ready sectors.
- Accelerate logistics and energy networks: Upgrade multimodal freight corridors, port‑hinterland connectivity, and urban‑industrial transport links; expand grid‑reliability and renewable‑energy capacity to insulate growth from energy‑price shocks.
- Targeted multimodal hubs: Locate industrial parks and logistics nodes near tier‑2/3 cities to spread growth and reduce regional wage gaps, using PPP and blended‑finance models where fiscal space is constrained.
3. Procurement‑based industrial policy: Leverage India’s strength
South Asia relies more on procurement‑type measures than on subsidies, and India has used this channel intensively. A more strategic design can de‑risk private investment and boost high‑productivity segments.
- Green and AI‑ready public demand: Use public procurement to favor energy‑efficient, digital‑ready, and AI‑integrated machinery, construction, and services; link order‑size to firms’ investment in clean tech or digital productivity.
- Local‑value‑add rules: Tie infrastructure and defense contracts to domestic content and technology‑transfer conditions, without choking competition; exempt highly competitive segments from over‑protection to avoid productivity losses.
4. Skills and education: Prep for AI‑led transformation
Rising AI exposure is already lowering hiring for some routine roles, while AI‑related jobs pay about 30% more in South Asia. India’s large youth cohort offers a dividend—but only if skills reform is front‑loaded.
- AI‑integrated vocational training: Embed AI‑literacy, data analytics, and “AI‑augmented” skills (e.g., coding‑assisted design, AI‑supported diagnostics) into IT‑enabled services, advanced manufacturing, and healthcare curricula.
- Lifelong‑learning accounts: Expand portable upskilling accounts for workers in AI‑exposed segments (BPO, back‑office, basic coding), compensating for falling job postings with short‑term skilling and reskilling linked to real‑time demand signals.
5. AI‑upskilling and productivity: From risk to advantage
While AI adoption is associated with slower hiring in highly exposed roles, it also raises productivity and can create higher‑wage jobs when firms invest in complementary skills and quality.
- Productivity‑linked AI grants: Offer tax credits or low‑cost finance to firms that adopt AI while simultaneously increasing their workforce share in AI‑complementary roles (e.g., data‑labeling, AI‑operations, quality‑control analytics).
- Digital‑public‑infrastructure‑based training platforms: Scale AI‑and‑digital‑skills modules through India’s existing digital‑ID and payment platforms, targeting informal‑sector workers, MSMEs, and rural entrepreneurs.
6. Targeted industrial policies: Focus on market failures
Across South Asia, trade‑related industrial policies have cut imports sharply but failed to materially boost exports; procurement‑led and skills‑linked measures have relatively better prospects. India should refine its approach.
- Narrow‑target industrial parks and clusters: Prioritize clusters where multiple market failures converge (poor connectivity, fragmented suppliers, weak testing‑labs); bundle infrastructure, power, and export‑quality certification with industrial‑park development.
- Export‑quality and market‑access support: Use trade‑related instruments to reduce tariffs and non‑tariff barriers on intermediate inputs, especially in sectors linked to India’s FTAs with the EU and UK, while linking export‑incentive schemes to demonstrable quality‑upgrades and value‑added measures.
7. Cross‑cutting priorities
- Strengthen regulatory predictability: Clarify and streamline rules for industrial investment, environmental approvals, and labor compliance to increase the effectiveness of all other policies.
- Monitor and evaluate: Use real‑time data on job postings, AI‑exposure indices, and export‑quality metrics to adjust industrial‑policy design and avoid over‑protection or mis‑targeting.
This brief distills current evidence from the World Bank’s South Asia Economic Update and related analyses to suggest that India can sustain high growth and job creation by combining robust infrastructure, smart procurement‑based industrial policy, AI‑integrated skilling, and market‑failure‑focused interventions.